Lesson Two: Market forces, not government regulation, provide the most effective impetus for higher gas mileage. America’s Corporate Average Fuel Economy (CAFE) law — the latest version of which requires car companies to average 35 mpg across their model lineups by 2020 — provides posturing for politicians and comfort for their more-gullible followers who believe in free lunches. But CAFE, which first became law in 1975, didn’t prevent the SUV boom in the 1990s that environmental groups so disdain.
During that boom both consumers and car companies were reacting to market forces, not CAFE. For consumers, the market force was cheap gasoline. For auto makers it was profits, which are more substantial on SUVs than they are on fuel-efficient small cars. In fact, GM, Ford and Chrysler gravitated toward SUVs because they couldn’t make any money on regular cars.
This sorry situation might change now. Thanks to the new contracts with the UAW — that allow the companies to hire new workers for lower wages and to buy their way out of lifetime health-care guarantees to legions of retirees — the Detroit Three finally might find profits in the smaller, fuel-efficient vehicles that more Americans now want. Likewise, market forces are spurring research on alternative engine technologies that could produce a breakthrough in five to 15 years.
CAFE is unnecessary at best and damaging at worst. The regulatory costs might wipe out much of Detroit’s savings from the new labor agreements.
~WSJ Editorial by former WSJ Detroit bureau chief Paul Ingrassia
Update: Related editorial in today’s Detroit News by its editorial cartoonist, Henry Payne
“California Eager to Hit Detroit with Ineffective Fuel Rules, But Won’t Consider Increasing Gas Tax”:
California already has the power to battle climate change. It, like all other states, can raise its gasoline tax any time it wants. And raising the price of driving by increasing the gasoline tax, most economists agree, is the fastest way to get drivers to drive less and buy more fuel-efficient vehicles.
But there is no groundswell for a gas tax hike in California, where even the nation’s greenest electorate recoils at the idea of putting its money where its mouth is.
From the conclusion an NBER Working Paper “Myth and Reality of Flat Tax Reform: Micro Estimates of Tax Evasion Response and Welfare Effects in Russia”:
The 2001 Russian flat rate income tax reform (flat rate of 13%, see chart above) has often been heralded as a success story and has been credited with large increases in tax revenues and an improved business climate. Although it has been difficult to differentiate between myth and reality with the Russian experience, many other transitional countries have followed suit with flat rate income tax reforms, and an increasing number of countries around the world are considering the adoption of a flat rate income tax.
In this paper we focus on the impact of the flat income tax rate on tax evasion, an issue that was, and continues to be, a major problem in Russia as well as in many other transition and developing countries. We argue that the flat tax reform was instrumental in decreasing tax evasion and that, to a certain extent, greater fiscal revenues for Russia in 2001 and several years beyond can be linked to increased voluntary tax compliance and reporting (see chart above).
The most significant reduction in tax evasion was for taxpayers that experienced the largest decrease in tax rates after the flat rate income tax was introduced. We also find that this decline in tax evasion was likely due to changes in voluntary compliance as opposed to greater enforcement effort by the tax administration authorities.
Recession odds have fallen by 12 points on Intrade.com over the last 4 weeks (see chart above, click to enlarge).
Ayn Rand Institute:
Philosophically, Americanism means individualism. Individualism holds that one’s personal identity, moral worth, and inalienable rights belong to one as an individual, not as a member of a particular race, class, nation, or other collective.
But collectivism is the premise of “Buy American.” In purchasing goods, we are expected to view ourselves and the sellers not as individuals, but as units of a nation. We are expected to accept lower quality or more expensive goods in the name of alleged benefits to the national collective.
Most “Buy American” advocates are motivated by misplaced patriotism. But for some the motive is a collectivist hostility towards foreigners. This xenophobic attitude is thoroughly un-American; it is plain bigotry.
Giving preference to American-made products over German or Japanese products is the same injustice as giving preference to products made by whites over those made by blacks. Economic nationalism, like racism, means judging men and their products by the group from which they come, not by merit.
Christian Science Monitor:
In a test of the American Dream, Adam Shepard (pictured above) started life from scratch with the clothes on his back and $25. Ten months later, he had an apartment, a car, and a small savings.
The effort was inspired after reading “Nickel and Dimed,” in which author Barbara Ehrenreich takes on a series of low-paying jobs. Unlike Ms. Ehrenreich, who chronicled the difficulty of advancing beyond the ranks of the working poor, Shepard found he was able to successfully climb out of his self-imposed poverty.
He tells his story in “Scratch Beginnings: Me, $25, and the Search for the American Dream.” The book, he says, is a testament to what ordinary Americans can achieve.
An interesting job market paper from a UC-Berkeley Ph.D. candidate Jenny Aker, “Does Digital Divide or Provide? The Impact of Cell Phones on Grain Markets in Niger.”
Abstract: Due partly to costly information, price dispersion across markets is common in developed and developing countries. Between 2001 and 2006, cell phone service was phased in throughout Niger, providing an alternative and cheaper search technology to grain traders.
The results provide evidence that cell phones reduce grain price dispersion across markets by a minimum of 6.4% and reduce intra-annual price variation by 10%. The primary mechanism by which cell phones affect market-level outcomes appears to be a reduction in search costs, as grain traders operating in markets with cell phone coverage search over a greater number of markets and sell in more markets. The results suggest that cell phones improved consumer and trader welfare in Niger, perhaps averting an even worse outcome during the 2005 food crisis.
Conclusion: Information technology is often considered to be a low priority when compared to other basic needs, such as food, water, shelter and health care . While basic needs cannot or should not be overlooked, cell phones could be a powerful development tool for farmers, traders and consumers.
Read a summary of the paper here.